Deregulatory takings and the regulatory contract

the long version

In this book J. Gregory Sidak and Daniel F. Spulber address deregulatory policies that threaten to reduce or destroy, without any offsetting payment of compensation, the value of private property in network industries. They term such policies "deregulatory takings." They further analyze the problem of the state's abrogation of its "regulatory contract" with private firms. They argue that constitutional projections of private property from takings, as well as efficient remedies for breach of contract, provide the proper foundation for the competitive transformation of network industries. Sidak and Spulber then derive the efficient price for the incumbent regulated firm to charge when the government compels it to sell access to its network to competitors. That price is the same price that emerges from application of takings jurisprudence and contract principles. Sidak and Spulber produce a comprehensive, coherent theory of "stranded costs," as well as a set of limiting principles for the payment of compensation when changes in government regulation upset settled expectations and harm private investors. Sidak and Spulber reaffirm the superiority of competition over regulation and, on the basis of their conclusions concerning efficient and compensatory pricing of network access, outline principles for deregulating network industries. This book makes basic theoretical contributions to both law and economics and has immediate relevance to policymakers involved in the competitive restructuring of the telecommunications and electric power industries in the United States and other countries.